Cisco shares scale 18-year highs on return of revenue growth

Published 8:53 AM ET Thu, 15 Feb 2018
Reuters

Feb 15 (Reuters) - Shares in Cisco Systems Inc were set to open at their highest in 18 years on Thursday after quarterly earnings suggested a years-long effort to turn the network gear maker around was finally bearing fruit.

Shares of the world's biggest producer of vital data connectors like routers and switches were up 7.7 percent at $45.53 in premarket trading. They have risen 30 percent in the past 12 months.

At least 12 brokerages raised their price targets on the stock, with the highest now Deutsche Bank analysts' $55 a share.

The company's quarterly revenue rose 2.7 percent to $11.9 billion, the first rise in more than two years. It also forecast an upbeat current quarter.

"Cisco's print and the guidance are important milestones they may change investor perceptions about the company as a 'melting ice cube'," Jefferies analyst George Notter said.

Cisco has been trying to reimagine itself as a software company with a focus on subscriptions after struggling with waning demand in its traditional business of selling the routers and switches which direct Internet traffic.

"(A) return to growth (is) no longer on the horizon; it has arrived - fueled by broad-based improvement across product, customer and regional markets and in both macro and company-specific execution," Cowen and Co analyst Paul Silverstein said.

The company has benefited from the growth in smartphones, tablets and Internet of Things gadgets, the shift into cloud services that demand more connections between servers, and the rise of security threats.

Cisco started its transition toward a subscription and software-focused model nearly three years ago when long-time company executive Chuck Robbins took over as CEO. It now gets a third of its revenue from recurring offers and more than half of software revenue from subscriptions.

Out of 29 analysts covering the stock, 20 have a "buy" or higher rating and nine have a "hold." No one rates the stock a "sell."

"We have consistently argued that Cisco is a 'rerating' story with an accelerating mix shift to stickier and higher margin software and subscriptions portfolio," Deutsche Bank analyst Vijay Bhagavath said.

At Wednesday's close, Cisco's market value was $208.08 billion, still just a third of the $619 billion it was worth at the peak of the dotcom boom in 2000. (Reporting by Supantha Mukherjee and Laharee Chatterjee in Bengaluru; editing by Patrick Graham)